HEALTH CARE'S GIANT -- When Hospitals Play Hardball

A Hospital Chain's Brass Knuckles, and the Backlash

By MARTIN GOTTLIEB and KURT EICHENWALD

Published: May 11, 1997

MOTORISTS in West Palm Beach, Fla., were recently confronted by a billboard 100 yards from the Wellington Regional Medical Center. ''Why Stop Here?'' it asked.

The sign advertised a nearby rival, the Columbia Palms West Hospital, owned by the Columbia/HCA Healthcare Corporation. The billboard was a literal sign of the times from Columbia, the world's largest health care company.

No other operator of hospitals has become so successful or so big so fast in the increasingly cost-conscious system of American medicine. At the heart of that achievement is an aggressively competitive vision of medical care, one that applies the practices of corporate America to an industry still dominated by not-for-profit institutions.

These practices include not only in-your-face marketing, but hospital takeovers, cost-cutting and layoffs, volume purchasing, complex pricing strategies and large monetary incentives for managers who meet financial targets.

The formula has helped the company grow in a decade from nothing to $20 billion in revenues, with roughly 350 hospitals, 550 home-health-care offices and scores of other medical businesses in 38 states. Columbia says it is a model for efficient, high-quality health care. And indeed, the company is widely admired for driving a long-wasteful industry to change, and its strategies are often copied.

But now some of the very things that propelled Columbia are troubling people inside and outside the company, in some cases producing a backlash:

* The company intensely pressures managers to raise profits by cutting costs and increasing patient revenues. Administrators have been able to almost double their salaries through bonuses based almost entirely on meeting financial targets. By contrast, about half of the industry does not offer bonuses, and hospitals that do usually tie them more closely to standards like mortality rates and programs that benefit the community. Some doctors, nurses and administrators, angered by rapid staff cuts that raise profits, are questioning whether care is being compromised -- an accusation that the company sharply disputes.

* Columbia markets itself with assertions that its prices are lower and its quality higher than its competitors'. Yet a computer analysis for The New York Times shows that the median price paid for patients in Columbia hospitals is 8 percent higher than the norm. And there is no conclusive evidence that Columbia's care is better than that provided elsewhere.

* Columbia has used bare-knuckled competitive tactics once rarely seen in the hospital industry. Critics say the company can be unnecessarily ruthless and even petty when it does not get its way, from suing communities that reject its efforts to acquire hospitals to maintaining a skeletal hospital with only two inpatient beds, in order to avoid surrendering a valued operating license. From San Diego to Providence, communities wary of Columbia's hardball tactics have recently resisted its attempts to buy local hospitals.

On top of this, the company is the subject of several Federal inquiries. Criminal investigators raided its operations in El Paso two months ago and scores of Federal agents have been interviewing doctors and others familiar with the company's practices around the country.

The Federal agency that runs Medicare is also investigating whether certain Columbia hospitals have systematically overbilled the Government by overstating the severity of the illnesses they treat. It is also studying whether doctors who invest in Columbia hospitals and regional health systems violate the law by referring patients to outpatient services, like home care, in which they have investments.

Columbia executives dismiss criticism as anecdotal misinformation from disgruntled employees or others who do not understand the company. They say that while Columbia is aggressive, it plays fair.

Richard L. Scott, chief executive of Columbia, said his company was only responding to demands to curb runaway medical costs. ''There's no way, as taxpayers, as employers, as employees, as individuals, people are going to pay what they paid in the past for health care,'' he said. ''So if you say, 'O.K., that's true,' then we've got to change.''

A result, the company proclaims in advertisements, is health care that ''has never worked like this before.''

The Beginnings

The Entrepreneur As a Maverick

Mr. Scott, 44, is lean and driven, almost a personal model for his company. He typically begins his days with 5 A.M. workouts. He neither smokes nor drinks.

''I've never heard him use a four-letter word,'' said David Colby, a former chief financial officer with the company.

Mr. Scott grew up in Kansas City, Mo., where his father was a truck driver and his mother worked, among other jobs, as a clerk at J. C. Penney. While in college, he made his first foray into business with his mother and brother, buying and reviving two Kansas City doughnut shops.

After graduating from Southern Methodist University Law School, he did legal work for hospital companies. But he had other goals. In 1987, he created the Columbia Hospital Corporation with Richard E. Rainwater, a Texas financier. Each invested $125,000 and sought money on Wall Street. Mr. Scott was the operations man, although he had never run a hospital.